Bidding Above The Listing Price For A New Home

Q: I saw a HUD home that is available for purchase. The agent who showed me the home recommended that I offer $35,000 for it rather than $33,000, which is the listing price.

The agent told me that the property was “hot” right now, meaning that a lot of people were looking at it. Does it seem right to you that I offer more than the listing price for the property? I’m a first-time buyer, so I’ve never done this before.

A: How do you know when you’ve hit the bottom of the housing market crisis? When people start paying more than the listing price for property.

If there are too many homes for sale and not enough buyers (which has been the case for the last 18 months), home prices will go down. But at some point, you have to reach the bottom. In other words, if home prices have fallen so low that there are swarms of people looking to make an offer, the price will go up. It’s simple supply and demand.

If you think that you can buy the home for $35,000 and you will stay there and improve it, and you like the neighborhood, your agent is right to guide you into making the strongest offer possible. If five people place offers on the property at the same time, it’s almost certain the property will sell for most than the listing price.

As a first-time buyer, the extra $2,000 may seem like a huge amount of money to you. But in the long run, it shouldn’t be. If you turned around and rented the house, could you get enough rent to pay for the mortgage, real estate taxes and insurance? If so, then the deal makes economic sense.

Before you make an offer to purchase a home, you should ask yourself if the home is a good deal for you. If you can afford it, will love living there and are ready to be a homeowner, then you should buy it.

By the way, I’ve been hearing about more low priced, foreclosed homes selling rather quickly. In some cases, blocks of ten or more homes are sold to investors at one time. In other cases, investors looking to buy at the bottom of the housing market are competing with first-time home buyers to buy foreclosed properties. And, yes, in some markets, first-time home buyers are edged out by competing offers.

Your broker may be right on the money with her advice. But if you have doubts, you should ask your broker to show you comparable sales of similar properties in the last month or two in your neighborhood. Your broker may show you a pattern of how homes have sold and how many of these low priced homes are now selling quickly.